Selected Market Indicators for Periods Ended 31 December 2019
2019 was a bumper year for equity markets and December was no exception.
Progress towards achieving a Phase One trade deal between the US and China fuelled the rise, supported by indications that global interest rates will remain largely ‘on hold’ during 2020. Political risk eased in the UK as the Conservative Party led by Boris Johnson achieved one of its largest majorities in modern times to win the UK General Election. Protests in Hong Kong remained a potential flashpoint.
Developed Market Equities had a strong month, with the MSCI World Index up +2.3% in local currency (-2.0% in unhedged NZ dollars). New Zealand Equities (+1.6%) also gained, however lagged their global peers, while Australian Equities (-2.2%) ended the year on a negative note. Global Listed Property (-0.2%) and Infrastructure (+3.0%) also experienced contrasting returns, while NZ (-1.2%) and Global (-0.2%) Aggregate bonds continued to slide.
An estimate of the Balanced Fund gross index return based on selected market indicators for December is +0.1%.
Significant developments include:
- The UK General Election came to a decisive end in December, with the Conservative Party gaining a crushing majority, meaning Boris Johnson is set to remain as Prime Minister for a five-year term. As such, the UK looks set to leave the European Union on 31 January 2020.
- The People’s Bank of China cut the reserve requirement ratio for commercial lenders in early January. This released about $114.9bn (USD) of fresh liquidity into the banking system ahead of the Chinese New Year later in the month. This move is expected to free up credit for small businesses and reduce bank funding costs, generally supporting increased economic activity.
- The Eurozone economy is expected to slow down further in 2020, for the third successive year. Economists anticipate growth of 1.1% in 2020, versus 1.2% in 2019 and 1.8% in 2018. Stretched corporate earnings, diminishing investor confidence, underlying political risk and the threat of tariffs from across the Atlantic have all served up headwinds to the Bloc.
The NZ (+1.6%) and Australian (-2.2%) share markets experienced contrasting months. Domestic equities rode the gains of international markets and embraced easing local risks, pushing annual returns above 30%. Australian shares capped off a strong year with a negative month, not helped by fallout from the Australian bushfires.
The increasing likelihood of a Phase One trade deal between the US and China helped boost returns from both Developed (+2.3%) and Emerging (+5.7%) Markets over the month. While Emerging Markets experienced its best return in more than 10 months, also helped by a weakening US dollar in December, the sector still lagged its Developed counterparts by more than 9% in 2019.
Property and Infrastructure
Global listed property (-0.2%) continued its subdued run, losing ground in light of upwards pressure on global bond yields over December. In contrast, Global Listed Infrastructure (+3.0%) had a positive month. 12-month performance remains above 20% for both asset classes, highlighting investor demand for yield and defensive sectors in 2019, although both sectors lagged the broader equity market over the year.
NZ Bonds and Cash
NZ composite bonds - a mix of government and corporate bonds - lost value (-1.2%) over the month, as bond yields increased (prices fell). The NZ 10-year bond yield finished the month at 1.65%, increasing 0.36% from the end of November.
Global aggregate bonds (-0.2%) continued their downward trend, delivering negative returns for the fourth straight month. Corporate bonds outperformed government bonds over the month as credit spreads continued to narrow. US Treasury yields rose further over the month, with the 10-year bond finishing at 1.92%, a 0.14% rise from the end of November.
The New Zealand dollar strengthened against all its major global counterparts throughout December, further supported by strong third-quarter local GDP growth. The largest movements came against the US dollar (+5.1%), yen (+4.3%) and euro (+3.2%) over the month.
13 January 2020